D.B. Lal, J. -
(1.) AT the instance of the assessee, who are Messrs. Mohan Meakin Breweries Ltd., Solan, the Income-tax Appellate Tribunal, Chandigarh, has referred to us the following question of law for opinion :
" Whether on a true interpretation of Rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, and on the facts and in the circumstances of the case, the Appellate Tribunal was justified in upholding the action of the Income-tax Officer in excluding Rs. 13,685 only instead of Rs. 34,212 and Rs. 11,576 instead of Rs. 29,441 for the assessment years 1968-69 and 1969-70, respectively, from the total income for arriving at the chargeable profits under the said Act ? "
(2.) THE facts giving rise to this reference may now be stated. Messrs. Mohan Meakin Breweries Ltd. which is a public limited company carries on the business of manufacture and sale of beer, Indian made foreign liquors, malt, breakfast food and soft drinks, etc. THE assessee-company besides doing their business is also earning dividends from investments made in other Indian companies. For the assessment years 1968-69 and 1969-70, the gross income of the assessee from dividends from such Indian companies amounted to Rs. 34,212 and Rs. 29,441, respectively. THE assessee's claim was that the gross amount of dividends was to be excluded from the total income for the purpose of computation of the chargeable profits. But the ITO deducted the reduced amounts of Rs. 13,685 and Rs. 11,576 for these assessment years. According to the ITO, the amount of dividend liable to be reduced under Section 80M of the I.T. Act, 1961, would give the reduced figure, which only could be the income of the assessee from dividends and as such only the reduced amount could be adjusted while computing the chargeable profits under Rule 1(viii) of the First. Schedule to the C. (P.) S. T. Act, 1964. Being aggrieved by the decision of the ITO, the assessee filed an appeal before the AAC, who too agreed with the ITO and dismissed the appeal. THEreafter, the assessee came in further appeal before the Tribunal, but did not succeed. THE Tribunal referred to the language used in Rule 1 of the First Schedule " shall be excluded from such total income " and held that only that amount could be excluded which was included for the purpose of income-tax and that amount could only be the reduced figure after application of Sections 57 and 80M of the I.T. Act, 1961. THE assessee, however, contended that the words " income by way of dividends " used in Rule 1(viii) should be taken to mean the gross amount of dividends before deductions are made under Sections 57 and 80M of the I.T. Act. THE revenue on the other hand contended that income by way of dividends could only be the reduced income after making the adjustments under the aforesaid sections of the Act. Since the Tribunal did not agree with the contention made by the assessee, the latter asked for a reference of a question of law to this court and in this manner the matter is placed before us for opinion.
The relevant statutory provisions with which we are concerned need be stated at this stage. As obvious, the present case relates to surtax and the relevant provisions of the C. (P.) S. T. Act, 1964, are given below :
" Section 2(5).--' Chargeable profits ' means the total income of an assessee computed under the Income-tax Act, 1961 (43 of 1961), for any previous year or years, as the case may be, and adjusted in "accordance with the provisions of the First Schedule. "
As evident, chargeable profits deal with two specific steps :
(1) of computation of the total income of an assessee as assessed under the I.T. Act, 1961, and
(2) of adjustment in accordance with the provisions of the First Schedule.
(3.) THE surtax is, of course, charged in respect of so much of the chargeable profits as exceed the statutory deduction at the rate specified in the Third Schedule : (Section 4).
"THE First Schedule
[See Section 2(5)]
Rules for computing the chargeable profits
In computing the chargeable profits of a previous year, the total income computed for that year under the Income-tax Act shall be adjusted as follows :--
1. Income, profits and gains and other sums falling within the following clauses shall be excluded from such total income, namely :--...
(viii) income by way of dividends from an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends within India ;..."
5. THE expression " income by way of dividends " to be excluded from the total income computed for the purpose of the I.T. Act created a difficulty in the present case. THE assessee contended that income by way of dividends would mean the gross income, because in respect of the dividend only that income was received. It was a different question that certain deductions were made for the purpose of income-tax payment with reference to Sections 57 and 80M of the I.T. Act, 1961. Notwithstanding such deductions, it could not but be stated that the company received the gross dividend and only that gross dividend is contemplated in Rule 1(viii) for exclusion from payment of surtax and the total income computed for the purpose of I.T. Act is to be reduced to the extent of the gross dividend for payment of surtax under the Surtax Act, 1964. THE revenue, however, pleaded that income by way of dividend only meant the reduced income which they preferred to call net dividend after making necessary deductions under Sections 57 and 80M of the I.T. Act, 1961.
The other relevant statutory provisions may also be referred to as these will be availed of during the discussion made in this judgment.;